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Based on pricing from October 2008, the latest version of the PS3 carries a combined Bill of Materials (BOM), manufacturing and box-content cost of $448.73, a 35 percent reduction from $690.23 for the first-generation model, using pricing from mid 2007, according to iSuppli?s Teardown Analysis service. This total doesn?t include other costs, including software, box contents and royalty expenses.

A portion of the cost decrease is attributable to normal learning curve and supply/demand factors that bring component prices down over time. A more significant factor is the clever integration of discrete components into the core silicon of the PS3, dramatically reducing the component count. The new generation PS3 contains an estimated 2,820 individual parts, compared to 4,048 in the previous-generation model with a 60Gbyte hard drive. This also dramatically reduces the overall cost of the console.

While the previous generation PS3 was sold by Sony at a significant loss, which the company made up for via game title sales and royalties, the new version may help stanch the hardware red ink. "With its new-generation PS3, Sony has come closer to breaking even, although it probably hasn?t quite reached that mark yet," said Andrew Rassweiler, director and principal analyst, teardown services, for iSuppli. "With iSuppli?s estimated PS3 cost at $448.73, the product retailing in the United States at around $399 and taking into account other expenses, the PS3 may be able to break even in 2009 with further hardware revisions."

All of the key Integrated Circuits ICs) in the new PS3 have undergone changes and employ more advanced process geometry compared to the previous model. These key parts, which include Nvidia?s Reality Synthesizer, IBM?s Cell Broadband Engine and Toshiba?s I/O controller, now are made using 65 nanometer (nm) process technology, compared to 90nm before. This helps to cut power consumption and to reduce the number of discrete components in the console.

More importantly, it appears that each of these ICs has been redesigned to augment functionality and to integrate hordes of previously discrete components that now have disappeared from the PS3.

Another key shift is the reduction of the entire power budget for the PS3. One of the key benefits to migrating the core integrated circuits to 65nm is the drastically reduced power consumption, which, in a nutshell, means a less expensive power supply. The new PS3 hardware features a Delta Electronics power supply (probably multi-sourced) priced at $21.50, down 30.1 percent from the $30.75 Sony part used in the previous version of the console.

Another key component supplier shift in the latest PS3 is the use of a Kionix Inc. three-axis Microelectromechanical System (MEMS) accelerometer in the controller unit that replaces the Hokuriku Electronic Industry Co. Ltd. part. The Kionix accelerometer is priced at 90 cents, down more than 60 percent from $2.35 for the previously employed component.

iSuppli?s preceding teardown of the PS3 in 2007 revealed it contains a three-axis accelerometer from Hokuriku?which, interestingly, featured a package that was smaller than the present offering from Kionix. Initially a minority supplier to the PS3, Kionix displaced Hokuriku as the No.-1 supplier beginning April 2007 onward.

Another component and supplier development is the use of an Epson Toyocom MEMS gyroscope sensor priced at $1.20, down from $1.80 for the Murata part revealed in iSuppli?s previous teardown. However, iSuppli believes Epson Toyocom is acting as a second-source for Murata for the new version of the PS3, and has not completely displaced the previous supplier. Epson Toyocom has expended a great deal of effort on shrinking the size of the gyroscope chip in its quartz or ?Q-MEMS? process, which is smaller than competing piezoceramic gyroscopes from Murata.

The latest PS3 includes a new version of IBM's Cell Broadband engine, which serves as the central processing unit for the game console. The new component is priced at $46.46, down 27.9 percent from $64.40 before.

A new version of Nvidia Corp.?s Reality Synthesizer serves as the graphic processing unit for the game console. The revised version of the part is priced at $58.01, down 30.3 percent from $83.17 previously.